Avis Budget Group, Inc. — Q2 2022 Form 10-Q Summary
Business context and reporting period
Avis Budget Group provides mobility solutions through the Avis, Budget, Zipcar and other brands in approximately 180 countries. Its reportable segments are Americas and International. This unaudited Form 10-Q covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $3.244 billion | $2.371 billion | $5.676 billion | $3.743 billion |
| Net income | $774 million | $398 million | $1.301 billion | $228 million |
| Net income attributable to Avis Budget Group | $778 million | $398 million | $1.307 billion | $228 million |
| Diluted EPS | $15.71 | $5.63 | $25.14 | $3.23 |
| Adjusted EBITDA | $1.205 billion | $624 million | $2.015 billion | $671 million |
Q2 net margin was approximately 23.9%, compared with 16.8% in the prior-year quarter. Six-month net margin was approximately 22.9%, compared with 6.1% in 2021. Adjusted EBITDA margin was approximately 37.2% in Q2 and 35.5% for the six-month period, compared with 26.3% and 17.9%, respectively, in the prior-year periods.
- Q2 revenue increased 37%, driven by a 29% increase in rental volume and a 9% increase in revenue per day excluding currency effects. Six-month revenue increased 52%, driven by a 36% volume increase and a 14% increase in revenue per day excluding currency effects.
- Americas Q2 revenue increased 30% and Adjusted EBITDA increased 64% to $1.041 billion. International revenue increased 71% and Adjusted EBITDA increased to $183 million from $8 million.
- Operating expenses rose 31% in Q2 but declined to 41.6% of revenue from 43.5%. Vehicle depreciation and lease charges declined 31% and fell to 7.2% of revenue from 14.3%.
- Six-month operating cash flow was $2.371 billion, compared with $1.255 billion in 2021. Net cash used in investing activities was $3.870 billion, primarily reflecting $6.269 billion invested in vehicles, partly offset by $2.594 billion of vehicle disposition proceeds.
- Cash, program cash and restricted cash totaled $684 million at June 30, 2022, compared with $1.411 billion at June 30, 2021. Cash and cash equivalents excluding program and restricted cash were $579 million.
Debt, liquidity and capital allocation
- Total indebtedness was approximately $19 billion at June 30, 2022, including approximately $5 billion of corporate debt and $14 billion of vehicle-program debt.
- Corporate long-term debt was $4.624 billion, compared with $3.990 billion at December 31, 2021. The increase primarily reflected a $750 million floating-rate term loan due 2029.
- Vehicle-program debt totaled approximately $14.1 billion, compared with $11.4 billion at year-end 2021, supporting a larger rental fleet.
- Available liquidity was approximately $850 million, consisting of $579 million of cash and approximately $271 million available under the senior revolving credit facility.
- The company remained in compliance with its corporate and vehicle-program debt covenants at June 30, 2022.
- The company repurchased approximately 7.9 million shares for $1.7 billion during the first six months. Approximately $2.25 billion remained available under the authorized repurchase program at June 30, 2022.
Material changes versus the prior comparable period
- Results benefited from the recovery in global travel demand, higher rental pricing, greater rental volume, favorable used-vehicle pricing and cost discipline.
- Adjusted EBITDA increased 93% in Q2 and approximately 200% for the first six months, based on reported figures.
- Vehicle depreciation and lease charges benefited from lower per-unit fleet costs, which declined 44% in Q2 and 55% for the six-month period excluding currency effects.
- Interest expense related to corporate debt was $64 million in Q2, up from $59 million, while vehicle interest expense increased to $97 million from $77 million. Six-month 2021 results included $129 million of early extinguishment-of-debt costs that did not recur in 2022.
- Stockholders’ equity declined to negative $649 million from negative $209 million at December 31, 2021, primarily because of share repurchases, partly offset by comprehensive income.
Outlook, commentary, risks and unusual items
Management cited continued travel recovery, improved pricing, fleet management and cost optimization as key drivers. The company is pursuing core revenue growth, operational cost optimization and capital investment to support demand. No specific formal full-year revenue, earnings or cash-flow guidance is provided in the filing.
- Fleet supply remains constrained by the global semiconductor shortage, and the company is holding vehicles longer than before the pandemic. Inflation, fuel costs, vehicle availability, manufacturer recalls and used-vehicle pricing could materially affect results.
- COVID-19 remains a risk because new variants or renewed travel restrictions could reduce demand, staffing availability, liquidity and cash flow. Recession risk, inflation and the Russia-Ukraine conflict could also weaken travel demand and increase fuel and fleet costs.
- The company initiated a Cost Optimization Plan in Q2 2022, terminated approximately 75 employees through June 30, and expects approximately $5 million of additional related restructuring expense in 2022. Total restructuring and related charges were $6 million in Q2 and $14 million for the six-month period.
- The company recorded a $2 million gain on the sale of its U.S. Virgin Islands operations and a $7 million loss on the sale of its Netherlands operations during the first six months.
- Legal proceedings include consumer class actions and other claims. Management estimated reasonably possible aggregate exposure from current proceedings of up to approximately $35 million above accrued amounts as of June 30, 2022.
- The company had commitments to purchase approximately $3.8 billion of vehicles over the following 12 months. Certain commitments depend on manufacturers’ performance under repurchase and guaranteed-depreciation arrangements.
- In July 2022, the vehicle-funding subsidiary issued $763 million of asset-backed notes at a weighted average interest rate of 4.90%. The company also repurchased approximately 0.2 million additional shares for $28 million in July.
Important facts for investors to verify
- Whether elevated rental pricing and travel demand remain sustainable as vehicle supply improves or economic conditions weaken.
- The sensitivity of earnings, liquidity and fleet costs to used-vehicle prices, vehicle depreciation, fuel prices, interest rates and foreign exchange rates.
- Refinancing requirements for approximately $2.287 billion of vehicle-program debt due within one year and broader dependence on asset-backed financing markets.
- The effect of approximately $19 billion of total indebtedness, floating-rate borrowings and restrictive debt covenants on future capital allocation.
- Whether planned vehicle purchases, fleet expansion and share repurchases can be funded while maintaining adequate liquidity.
- Potential outcomes and accrual sufficiency for disclosed litigation, manufacturer obligations, repurchase and guaranteed-depreciation agreements, and other contingencies.